About Me

2015-07-24

An Economics professor's serious mistake

This "Fact Check" from Flavio Menezes is so extraordinarily wrong that it does not pass the common sense or insanity text. The first sentence in its verdict , that is I quote "The Assistant Shadow Treasurer is correct that the efficiency of the GST as a tax is similar to that of income tax", is spectacularly incorrect and wrong.

That verdict even blatantly contradicts or ignores or misunderstands the review provided by Professor John Freebairn that the so called Fact Check was presumably engaged as an expert opinion. It is a serious and appalling error or error in judgement, understanding, or simply oversight or negligence on Flavio Menezes' part. How did that happen Flavio Menezes, a Professor of Economics at The University of Queensland, is beyond comprehension.

In terms of efficiency, the GST, which is a flat with a rate of 10% as currently applied even though there are exemptions such as fresh food, health etc, is much more efficient than the Australian income tax which is very progressive in the tax rates ranging from 0 to effectively 47% if the medicare levy is included. There is virtually no argument about the relative efficiency among economists and most politicians know that also.

In terms of distributional effect, the progressive nature of the income tax is much more favourable to low income people because they are taxed proportionately at lower rates and tax the high income people much more heavily.

PS: Of course, in order to derive his erroneous conclusion, Professor Flavio Menezes used a flat income tax. We all know that is purely an assumption and is far from what the very progressive Australian income tax system is.